The Internal Revenue Service faces a shrunken enforcement staff, a coming retirement brain drain and a population of 25-and-under recruits that recently dropped from some 650 to only 200, its commissioner said on Thursday.
In a National Press Club speech aimed at touting the agency’s accomplishments while issuing a warning to lawmakers who keep cutting the IRS budget, John Koskinen said more than 40 percent of the IRS workforce will be able to retire by 2019. That’s out of a workforce of 85,000 (soon to shrink to 17,000 less than the staff size in 2010). “What I worry about is if we don’t have enough young workers in the pipeline, the IRS will have great difficulty developing the next group of leaders it needs five or 10 years down the road,” he said.
With 5,000 enforcement personnel recently departed, the agency’s audit rate has fallen to its lowest level since 2004, Koskinen said. “In cutting the IRS budget, historical collection results suggest that the government is forgoing more than $5 billion a year in enforcement revenue, just to achieve budget savings of a few hundred million dollars,” he said. That creates not just a monetary threat but a threat to society’s culture of compliance with tax obligation—the $3.3 trillion that comes in from people who voluntarily pay what they owe-- risking that the United States becomes like Greece or Italy, he warned.
“If Congress were to fund the president’s budget, we estimate that the enforcement improvements we have planned would yield $64 billion over the 10-year budget window that’s commonly used,” said Koskinen, whose term expires in November 2017. “That would average out to about $6 billion a year.”
Cautioning that IRS is a tax administration agency that leaves policy to the Treasury Department and Congress, Koskinen responded to election-year questions with gentle challenges to IRS-related statements by two Republican candidates.
Asked about Donald Trump’s statement that he can’t release his tax returns because he’s being audited on account of his Christianity, Koskinen—saying he’s not at liberty to discuss individual cases—said, “taxpayers own their returns” and may release them regardless of whether an audit is under way. “All presidents are audited,” the commissioner added, so anyone running for president should expect it.
In response to Texas Sen. Ted Cruz’s longtime vow to “abolish the IRS” and reduce tax returns to a mere postcard, Koskinen said, “Calls for abolishing the IRS are shorthand for ‘We have to fix the tax code.’ ” Reducing returns to a single page is one thing, he said, “But somebody still needs to review the numbers to collect our $3.3 trillion. If they want to call it some other name [than] the IRS …, that’s okay with me.”
As he has told Congress when asked about percolating efforts to reform the tax code that is “the world’s most complicated,” Koskinen said he supports simplification, “which is in everybody’s interest.” Taxpayers spend an estimated 6 billion hours completing individual tax returns, he noted. “We will do everything we can to provide technical assistance,” he said.
Complimenting IRS workers, dozens of whom were in the audience, Koskinen touted the agency’s accomplishments.
The IRS brings in about 92 percent of federal revenue, or $100 for every 35 cents invested, he said, pulling a crisp $100 bill from his pocket and directing luncheon attendees to envelopes on their tables containing 35 cents.
In the current filing season so far, IRS has issued more than 65 million refunds, worth a total of $190 billion. The agency processes 90 percent of refunds in 21 days or less, he said.
The IRS website this year has received 248 million hits, and its call centers have answered more than 8 million calls.
“The level of service on our toll-free help lines is over 70 percent, and the average for the entire filing season will probably be at or above 65 percent, which is a vast improvement over last year,” Koskinen said, though that percentage may drop to a final 47 percent or so once seasonal employees leave. “On our busiest day earlier this filing season, our systems accepted 4.4 million tax returns, with nearly 450,000 accepted in one hour at the peak. That’s 125 returns every second.”
The agency responded last year to the grim news of hackers breaking into taxpayer return transcripts to lift personally identifiable information. It created a partnership with the private sector and 200 new filters that criminals know are “increasingly sophisticated,” he said. The agency’s internal data systems were not hacked, he stressed, thanking his Chief Technology Officer Terence Milholland, at his side.Industry and return preparers are helping the IRS spot suspicious patterns in refund requests, Koskinen said. “But there’s a delicate balance here. We need to provide the strongest possible authentication processes that protect taxpayer data without making it almost impossible for people to safely access their own data and use IRS services online.”
IRS estimates that its systems withstand over 1 million online attacks per day.
Another problem in the budget and hiring area, Koskinen said, is the 2013 expiration of “streamlined critical pay authority,” which has long allowed the agency to pay extra to information technology professionals who could earn more in the private sector. “More immediately, 10 of the last 14 people on this authority are senior IT executives who turn into pumpkins by this time next year when their four-year terms under the authority run out,” he said.
Asked about his response to the nearly three-year-old political controversy over mishandling of tax-exemption applications from nonprofits in one IRS division, Koskinen called the episode a “significant management failure” and noted that the “chain of command” atop the IRS and in that division from 2010-13 “are all gone. IRS accepted all reform recommendations from the Treasury Inspector General for Tax Administration and the Senate Finance Committee, he added.
Though he can’t say there won’t be future mistakes, the IRS has since created an Enterprise Risk Management system, in which “all employees should see themselves as risk managers,” he noted.
The commissioner addressed the IRS’s notoriously low reputation with humor. “To the average person, the IRS may seem almost like a vending machine: Put your return in, push a button, and out pops your refund,” he said. “I know the IRS is not anyone’s favorite government institution, and we will not win any popularity contests, especially in an election year.”
He then cited a recent poll that showed that 12 percent of taxpayers liked Russian President Vladimir Putin better than the IRS, and that 27 percent of respondents would be willing to get a tattoo to avoid paying taxes. “No matter what the tattoo says,” Koskinen joked, “you still owe us the money.”
In thanking IRS employees for their commitment to public service, he singled out several, including one revenue agent in Detroit, Angelo Fracassa, who recently retired after 60 years of service.